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Law360 (August 7, 2020, 5:12 PM EDT ) An Illinois hotel told a federal court Thursday that its insurer unreasonably denied coverage for its business losses due to the COVID-19 pandemic, rebutting the company's assertion that a virus can't cause "physical loss" to a property.
The Bend Hotel Development Company LLC argued in its complaint that it was forced to cease most of its operations through no fault of its own, as the state has issued orders shuttering unessential businesses to stem the spread of the coronavirus. It seeks a declaration from the court that Cincinnati Insurance Co. is on the hook for the losses the hotel has sustained as a result.
Illinois courts have consistently held that the presence of a dangerous substance in a property constitutes "physical loss or damage," the East Moline, Illinois, hotel said Thursday.
And, unlike many commercial property insurance policies on the market, the one at issue contains no exclusion for loss caused by a virus, it said.
"If defendant had wanted to exclude pandemic-related losses under the plaintiff's policies it easily could have attempted to do so on the front end with an express exclusion," the hotel said in its complaint. "Instead defendant waited until after it collected plaintiff's premiums, and after a pandemic and the resulting closure orders caused catastrophic business losses to the plaintiff, to try to limit its exposure on the backend through its erroneous assertion that the presence of the coronavirus is not `physical loss' and therefore is not a covered loss under its policies."
The hotel also accused the insurance company of breach of contract and a bad faith denial of insurance, alleging that the insurer "directed its insurance agents to make sham claim notifications before defendant's policyholders even noticed its claims."
"Defendant took these actions, before claims were even submitted, as part of its plan to discourage claim notifications and to avoid any responsibility for its policyholders' staggering losses, in violation of Illinois law," the hotel said in the suit.
Cincinnati Insurance Co.'s denial of coverage is an improper claims practice under Illinois law because it failed to conduct a reasonable investigation before refusing to pay and failed to provide reasonable and accurate explanation of why claims were denied, the hotel alleged.
Representatives of the parties could not be immediately reached for comment on Friday.
The hotel is represented by Charles Aaron Silverman of Charles Aaron Silverman PC.
Counsel information for the insurance company could not be immediately determined.
The case is Bend Hotel Development Company LLC v. Cincinnati Insurance Co., case number 1:20-cv-04636, in the U.S. District Court for the Northern District of Illinois.
--Editing by Peter Rozovsky.
For a reprint of this article, please contact reprints@law360.com.
